Saturday, February 28, 2009

Financial Crisis - Beautifully explained

I came across this interesting article by an IIT Bombay student. This explains the financial crisis in terms which anyone can understand and also manages to put the whole picture together. You can read the whole article at Am reproducing the post here for easy reference.

The Fall of the Wall

After every major newspaper and publication in the world has used every possible adjective to describe an occurrence, with every single person having read at least a part of it, what new, is a student newsletter of a technical institute going to offer?

Well, very frankly, nothing. This article is about the worst financial crisis to have hit the global markets, not to mention the most complex one too. It has been written by a group of undergraduates who are majoring in a discipline as different from finance as Ridley Scott is from Kanti Shah. Yet, we thought we should write this, not because we know more, but because it would help us put forward our grossly simplified thoughts on this highly complicated problem and through discussion with our readers, would help us to better our level of understanding.

If anyone finds anything unclear (even after googling :P), please feel free to contact me on my email id

So you wake up every day, pick up the newspaper and read almost the same headline that you read the day before. A carefully structured juxtaposition of the words “Wall Street crisis”, “Subprime Mortgage”. “Credit Crunch”, “Lehman Brothers”, “Fed, Treasury” and recently, “Bailout, $750 Billion”. And it makes one wonder, what the hell is all of this? And how did things get so bad?

Why the housing sector?

In the US, owning a house is considered to be the best investment a person can make. The US government encourages people to buy their own house by providing incentive in the form of tax cuts on the mortgages paid by them. Further, a person can use his house as an “ATM card”, drawing credit based on the value of his house. Now post the dot com crash, in 2001, Alan Greenspan, then Chairman of the US Federal reserve bank, slashed the interest rates (down to 1%) This, combined with the encouragement provided by the US government to buy houses, made people in the US borrow a lot of money (in the form of loans, with a very low interest rate) Mortgage institutions also took advantage of this huge demand of loans by providing a large number of the now notorious “subprime mortgage loans”

Wait! Subprime what?

Usually, when you take a loan from a bank, you need to show your credit history, whether you have defaulted in the past or not. You also need to provide something known as collateral (an asset that can be taken over by the bank in case you default) You also need to show that you have a job with a steady income. A subprime loan is a loan that is given to a person with a bad credit history, with nothing to show as collateral (except the house that the person would buy with the money) and in many cases, with no job too. Now why would an institution give such a risky loan? Two reasons. Firstly, during the period 2002 to 2005, the US housing market was undergoing a tremendous boom. This means that a house that was bought for $100,000 today would be worth, say $150,000 in a year’s time. Hence a mortgage institution could always take control of the house, in case the person defaulted, and could sell it at a profit. Secondly, the banks would charge a higher interest rate on a subprime loan. Note that the incredible numbers of subprime loans were made based on this one assumption: The price of houses would keep on increasing.

Sounds good…

But wait, it gets better. The loans that were made by the mortgage lenders were further bought by two giant institutions; the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac) These are private institutions with a high level of government backing. Normally, if a mortgage institution gives a loan of $100,000, it would recover back an amount of say $150,000 after a period of say 20 years, via monthly payments made by the borrower. But the institution’s money would be “stuck” for 20 years. Enter Fannie and Freddie. They buy these loans from the institutions for say $120,000 and then recover the amount of $150,000 themselves, earning a profit of $30000 in the process. And these giants need not worry that their capital gets “stuck” for a long period of time, since they sell what are known as “ Mortgage Backed Securities” ( similar to stocks) to the common investors. A part of the $30,000 profit that they earn is given away as dividend to these investors.

Cool. But how do investment banks come into the picture? And what are these CDOs we keep hearing about?

Now comes the most “beautiful” part of it all. Seeing a nice opportunity to earn some large amount of money, the large Wall Street investment banks also got into the picture. These I banks bought the risky subprime loans that were made by the mortgage institutions. They then made packets of these loans (securities) that could be traded. Now, securities are rated by rating agencies according to the chances that the underlying assets will be defaulted upon. U.S. Treasury bonds, for example, get AAA+ ratings because of the negligible amount of risk associated. Enter a special type of security called the Collateralized Debt Obligation (CDO) A CDO takes these subprime loans and slices them up into “tranches” (like layers) The upper layer consists of loans that are least likely to be defaulted upon and so on. These upper layers got AA+ ratings from the rating agencies; the lowermost layers got BB-. Investors who wanted lesser risk (and were ok with lesser returns) went for the AA+ rated parts, the risk takers went for the high returns yielding BB- parts. Thus, the I banks were able to form AA+ securities from absolutely risky, subprime loans. Brilliant! Further, investors bought insurance on these securities. The insurance companies (like AIG) were more than happy to sell a large number of insurance products to people to protect them against possible losses due to the securities failing. Insurance companies kept on making out these insurances far beyond their covering capacity. Companies started insuring any kind of big loan with the guarantee of coughing up the cash should the loaner default. Just like mortgage-backed securities, these instruments (technically called Credit Default Swaps or CDS) were being bought and sold on the market at high premiums and companies who were dealing in them were raking in the profits. And what was the risk involved in these transactions? A CDO could not fail unless there was a total collapse of the system, which could happen only if a large number of the loans could not be recovered, which could happen only if the underlying collateral also failed, giving the mortgage lenders no option but to give up. And that wasn’t supposed to happen…since the assumption that “the price of houses in the US would keep on increasing” still held ground.

Fabulous! So why didn’t this romance last forever?

All this was fine till the day the housing market went crashing. Thousands of people began to default on their loans. The insurance companies and the buyers of credit default swaps, needless to say, did not have the cash to cover the claims. The investment banks—the Bears Stearns and the Lehman Brothers of the world had gone deep into mortgage-backed securities or the credit default swap markets. As a result of years of high-paying lobbying initiatives, the investment banks had made sure that they operated under the minimum of controls and oversight, freeing them to take unreasonable risks while investing. Now, when the system went bust, the only way these banks could have survived was by borrowing a lot of cash from the market and getting rid of their obligations based on CDOs and CDSs. However, Wall Street firms refused to trust one another. Banks had become extremely tight when it came to credit. No money was available. The great, 158 year old Lehman Brothers filed for bankruptcy. Bear Stearns narrowly avoided that by getting bought out by JP Morgan, along with the Fed’s backing.

Merrill Lynch was bought by Bank of America. Fannie Mae and Freddie Mac as well as AIG were deemed too important to be allowed to collapse, and were rescued (and nationalized) by the US Treasury. Morgan Stanley and Goldman Sachs ditched their sole I banking existence and adopted the consumer banking + I banking model. Washington Mutual, an US bank, collapsed, resulting in the largest banking failure in US history. Citigroup, UBS and others had losses amounting to billions of dollars.

Wall Street had changed, forever.

After spending around a trillion dollars of American tax-payer’s money to bail out some of the above mentioned organizations, the US Treasury came up with a plan, asking for $700 billion to buy the underlying “toxic” bad loans and attack the problem at its root. After much political deliberation, the plan has been accepted by the US government. It remains a huge question whether this plan would help, or will we be pushed into an extended period of financial mayhem. It is unfortunately a question too difficult (and risky) to answer.

-Rahul Dash

P.S. Some major institutions that fell and their effect on the job scenario, especially in India :

Lehman Brothers

Filed for bankruptcy due to unavailability of funds to continue daily market operations.US ops sold to Barclays. Indian ops to Nomura Asst Mgmt, a Japanese co. Most employees expected to be retained. Top talent to be retained on existing payscale.

Merrill Lynch

Sold to Bank of America for $50 billion. 600 Indian employees. Future uncertain but not many layoffs expected due to non-overlap of BoA and Merrill’s ops.

Bear Stearns: Sold to JPMorgan

Fannie Mae and Freddie Mac

AIG nationalized

Washington Mutual
sold to JPMorgan in the largest banking failure in US history

sale caught in a legal battle between Citigroup and Wells Fargo

Tuesday, February 24, 2009

Interview Experience - 2

This time the interview was for an Institute located in the 'Silicon Valley of India'. There were 8 people in each panel and there were 2 panelists.
P1: Dr. Rahul De.
P2: Dr. Damodaran.

P1 called us inside and made us sit around a table. The interviews were to be held in the same order. An interesting thing was that there were two 'Abhinav Jain' and a total of four 'Abhinav' which really made the whole situation funny.

The case was about six institutes out of which A, B & C belonged to tier-1 and had very little difference between them. D, E & F belonged to tier-2 and had come up much after A, B & C. Now D, E and F had to interview a huge number of candidates because the shortlists for all the institutes had considerable overlap and the top candidates chose ABC over DEF. Now D, E & F institutes were the ones with the least resources. So what should be done to improve the situation.

Quite a real life scenario - makes me believe that case method of discussion is the best one. As for the actual Group Discussion, it was a fish market set up by people in suits. Could have had a much better discussion given that we had 20 minutes if people would have spoken in order and would have wanted the discussion to proceed.
Personally, I made 3 - 4 entries that I believe were all solid ones. At one point, I could see one of the profs nodding his head. I also contributed in the conclusion. After the discussion we were supposed to write a summary of the discussion on a single sheet of paper.

Finally it was the turn of the interviews and I was the first one to go in. I had an interview of about 30 minutes plus and all the others were shown the door in close to 10 - 12 minutes. Don't really know why they liked my ass to kick.

P2: CSE - Dual Degree.. Internship..
Me: Yes sir.

P1: What do you know about the cloud?
Me: Cloud - as the internet?

P1: No, no. Cloud as in Cloud computing.
Me: Blah blah.

P1: But when should we decide to use the cloud and when should we not use it.
Me: Blah blah.

P1: What is the difference between email and Youtube video?
Me: Blah blah.

P1: Have you heard about protocols?
Me: Yes, sir.

P1: Then let me ask you about difference between TCP and UDP.
Me: Reliability blah blah.

P1: Which would you use for email and which for Youtube?
Me: Blah blah.

P1: Why?
Me: Blah blah.

P1: Your answer was correct was reasoning was wrong. Think about it.
Me: (Silent)

P1: Okay. Change of topic.

P1: (Looking at my grade sheet) Software engg - A. What is the Software life cycle?
Me: Sorry.

P1: Waterfall model? Agile programming?
Me: Sorry.

P1: This was in 2007 - 08 and you don't remember even though you have an 'A'. You must be bluffing.
Me: (smile - no other option)

P1: Okay. Compiler Design - A. What are the four parts of a compiler?
Me: Blah blah.

P1: What do you feel about Open Source?
Me: Oh! We were discussing this outside.

P2: (jumping in) You were discussing what questions would be asked inside?
Me: No, no. We were having a general discussion. Kanwal Rekhi, Bill Gates, Open Source. (Tell him a few stories.)

P2: Okay. But what is your take on Open Source?
Me: (Take a negative stand)

P1: Is Richard Stallman a fool?
Me: Blah blah.

(P1 and P2 joke amongst themselves.)

P2: So how do they protect the software?
Me: IPR, licenses, copyright, creative commons.. Blah blah..

P2: What about GPL?
Me: Sorry. Don't know the exact thing.

P2: (Looking at the SOP) Innovation at school. What was that?
Me: Blah blah.

P1: (Looking at the SOP) You want to open up a venture. Give me 3 ideas and I will decide if I want to fund them or not. I am a big venture capitalist.
Me: I have the zeal but not ideas.

P1: Okay. I give you an idea. Why don't you make viruses and then sell anti-viruses. This is a multi-million dollar industry.
Me: There is no challenge.. blah.. blah..

P1 & P2: That is it?
Me: Yes ethically also there is a problem.

P1: What else do you find challenging? Or what do you do in your free time?
Me: Contemporary fiction. Chetan Bhagat, Maanvi Ahuja, Tushar Raheja.. blah.. blah..

P1: Is this literature?
Me: Blah blah

P2: Is this like movies?
Me: Blah blah.

P2: Heard about 'Orhan Pamuk'?
Me: No

P2: You talk about a big person like Chetan Bhagat but have not heard about a small guy who won a small prize called the Nobel Prize.
Me: (Talk about entertainment and easy to read fiction)

P1: This is what we call trash.
Me: Blah blah. Life of Pi.

P1: That won the Booker - another shady award.

P1 and P2: Thank you.

That was it and I was done within 90 minutes.

Friday, February 20, 2009

Interview Experience - 1

I had an interview today for admission to one of God's own institutes. It was awesome. I believe that the interview panel had one of the three notions about me -
a) This guy is great
b) This guy is a dud
c) It doesn't matter
I would wish that it was the first one, though most likely it was the last one. The reason for my feeling like this was that the interview was almost a cakewalk.

Coming to the GD, it was a total fish market. We were given a small write up on how Indian engineers were all going for software jobs instead of working on their core areas. This was causing a loss to the country. We had to discuss on this after 5 minutes of thinking time. The time given to discuss was 15 minutes. I opened the GD with a terrific (yes, I am not modest! :-)) structure but it was lost in the catfight that ensued. People just tried to throw whatever points they had thought during the thinking time without really trying to reach any conclusion. I made a couple of good points in middle stages of the GD and was pretty much satisfied with my performance. Others, I would leave it to God - people were speaking even three at a time. Finally the panel signalled to stop and the GD was over.

For the interview I was the first person on the list. There were 2 panelists - lets call them P1 and P2. I entered and was asked for the certis by P1.

P1: Where are your mark sheets?
Me: Sir, they are there.

P1: Where?
Me: (Reach across to my folder, take it out from the side pocket and hand it over)

P1: You put all your unimportant certi in front. It seems as if you don't give any importance to acads.
Me: (smiling) No, sir. It is not like that. The mark sheet was not fitting into the leaves.

P1: Ok. Introduce yourself.
Me: blah.. blah.. Pursuing a Dual Degree in Computer Science.

P2: Pursuing? You have put in entries for both years of M.Tech grades. You should indicate something that it is not over yet.
(Hand over the form to me.)
Me: I scribble 'current' in front of my grades.

P2: So did you want to hide something?
Me: No, no sir.

P2: Ok continue.
Me: Comp Science.. blah..

P1: What is your favourite area in CS?
Me: Distributed Systems and Networks.

P1: Are they same?
Me: No. Give some difference.

P1: Name one distributed system.
Me: Google.

P1: Explain how it works schematically.
Me: (Draw a diagram. Explain how a query is processed. Then he grills me on how it is ensured that duplicates are not there.)

Finally acads is over. P1 gestures to P2 to take over.

P2: You have an offer from xxxx(Software company). (Links it to the GD topic) You would also be a waste.
Me: Talk about venture being an ultimate goal for me.

P2: What is your opinion on the GD?
Me: Fishmarket. blah blah..

P2: You have won GD contests. You should have led the GD.
Me: (smiles) blah blah.

P1: Give us another area where we can grill you.
Me: Marketing for college fest.

P1: What do you mean by marketing? Channa wala also does marketing.
Me: blah blah.. sponsorships

P1: How much money did YOU get out of the sponsorships?
Me: blah blah..

P2: How many interviews have you had?
Me: This was the first one.

P2: Oh! So nice warm-up for you.
Me: (smile)

And that was it. I came out and my interview was over.

Sunday, February 15, 2009

Techkriti Day 4

Attended the last day of the last festival in IIT Kanpur today. Basically just attended the laser show and fireworks. Here are a few pics and videos from the same.

(Thanks to Jodha for the pic.)

Techkriti Day 3

As last year, virtual reality games had been put up in SAC. Actually these are more than the normal virtual reality games and are at the cutting edge of technology. In the following video we see virtual soccer being played. The setup was with the help of cameras and projector fixed on the roof above the arena.

Attended a talk by Contact Singapore for the goodie bag that they were distributing. I was quite impressed by the presenter who made full use of the one hour and did a good selling job of Singapore.

Another interesting thing for the day was the lecture by Kanwal Rekhi. For the uninitiated, he is a very famous entrepreneur and was one of the people responsible for the rise of Silicon Valley. Complete bio can be read at - He came across as a very on-the-face guy who was not afraid of speaking what he truly felt. There were quite a few things that I liked in his talk.

One great anecdote was about the image that Indians had in the 1960's in the US - it was of snake charmers and beggars. A prof called him and offered assistance since he came from a third world country. When Dr. Rekhi aced the test, the prof warned him against cheating. On the second test, the prof stood behind Dr. Rekhi and observed him throughout the test. When Dr. Rekhi aced the test again, the prof congratulated him - for excellent cheating skills.

Coming back to serious talk, he took Japan as an example and showed that it was not growing due to lack of entrepreneurial activities and due to the excessive discipline followed by the Japanese. He said that entrepreneurs were the creators of wealth. They were able to able to do because they were full of unrest and were the breakers of discipline. He then connected to India and said that India in the first 50 years could not progress because we had a wall around us. The competition is really good for growth. Talking about the differences between managers and entrepreneurs he said that the entrepreneurs were visionaries and thought about getting gains of 10x instead of 10%. They also had to be the generalists forming the link between the various departments. The final thing that he mentioned that recession was as good a time to venture out as any other time.

Post the talk I attended a 3-d movie - Shrek 3. It was good fun for reasons other that the movie. The movie (or the 3-d addition) were not really worth it and were a pain. The other fun part of trying to help someone hook up was much better.

Finally a video of the Techkriti logo at SAC which really fascinates me. Even though I have already posted a video of the same earlier but I will post another one.

Saturday, February 14, 2009

Nine year old giving tips on how to get girls

A nine-year old is giving tips on how to woo girls and says he is too young to be dating girls which is meant for older people ("about 15 or 16 years old"). This is what the world has come to unfortunately. Twenty two year old are happy and gay with their male friends and a nine year old has become the guru.

Take a look here:

Techkriti Day 2

This was the scene at the SAC Chouraha.

This is a video of a kid with Shiksha Sopan. He works really coolly with the nails and manages to arrange them in a flash. It was great to see these underprivileged kids who had a better understanding of scientific concepts than many of my classmates who had the chance to go to one of the best schools in the country.

Techkriti Day 2

A new event called junkyard wars was added to the festival. The participants are supposed to make a working vehicle out of the junk. Here are a couple of pics:

Yesterday, I had posted a video of the Endeavour area. Here are the pics today:

This was an exhibition put up by DRDO.

This was an excellent project brought by Government Polytechnic Institute, Bikaner. They had developed a touch surface without using touch screen and had made use of infrared technology. The applications they had developed were awesome and would even give Apple run for their money for its over-hyped iphone technology.

(Thanks for all the above pics to Nitin. His photostream can be accessed at

Finally, a few pics of the banners put up around SAC:

Friday, February 13, 2009

Techkriti Day 2 Events

For me the events to watch out for would be the Software Corner events - prelims of both Chaos and Instant.
Chaos - 9:30 AM
Instant - 2:00 PM

Chaos Finals will be in the evening today at 8:00 PM. In case you are wondering what is Chaos, then Chaos is a surprise event in which you are told the language that you have to code in on the spot. That means that you get a language about which you have never heard of before and you have to learn and code solutions to the problem there and then.

Instant is a more typical run-of-the-mill on this spot programming contest.

In the talks sections today there is:
Dr. Lee Hartwell, Nobel, Physiology, Audi - 11am
Dr. habib, NASA- Audi, 5pm

For the rest read the official schedule in

Techkriti Day 1

Looking at day 1 of Techkriti, I am pleasantly surprised by the increasing number of people coming to attend the fest right from day 1 and am even more happy to see a house full auditorium for the opening ceremony. Never before had I seen a house full audi for the opening ceremony of Techkriti.

The much acclaimed electrical hoardings did spread their aura and looked fabulous. Don't have the pics but have a video from around 7:00 PM at SAC which should give you a fair idea about the atmosphere of the fest.

The backdrop in the audi was also good. A small clipping for that is here.

For the endeavour stalls, these guys have come up with a nice closed tent for the whole event. This makes the whole event look a lot more professional. A video shot at 2 in the night is here. Will shoot a better one during the day and post it.

Finally a short video of the banners around SAC and also a look of the road with lights on both side.

Thursday, February 12, 2009

Techkriti Day 1 Events

1) Inaugural Lecture by David Morrison, NASA
2) Zeno Exhibition by David Hanson

Wednesday, February 11, 2009

Techkriti '09 Electrical Hoardings

In case you were wondering what was I talking about in the previous post, here is a pic.


The final moments before the festival blasts off tomorrow. First change from last time (in fact from anytime anywhere that I have seen) - electrical hoardings for all the sponsors. This is a great thing that is sure to make the sponsors happy. Stay tuned for more updates.

Another good thing is the number of good promotional videos.

Video 1:
Video2 :
Fox :

In case you missed the party here are the snap shots:

Ode to the nice guys

Came across an interesting article:

I am reproducing it here:

This is a tribute to the nice guys. The nice guys that finish last, that never become more than friends, that endure hours of whining and bitching about what assholes guys are, while disproving the very point. This is dedicated to those guys who always provide a shoulder to lean on but restrain themselves to tentative hugs, those guys who hold open doors and give reassuring pats on the back and sit patiently outside the changing room at department stores. This is in honor of the guys that obligingly reiterate how cute/beautiful/smart/funny/sexy their female friends are at the appropriate moment, because they know most girls need that litany of support. This is in honor of the guys with open minds, with laid-back attitudes, with honest concern. This is in honor of the guys who respect a girl’s every facet, from her privacy to her theology to her clothing style.

This is for the guys who escort their drunk, bewildered female friends back from parties and never take advantage once they’re at her door, for the guys who accompany girls to bars as buffers against the rest of the creepy male population, for the guys who know a girl is fishing for compliments but give them out anyway, for the guys who always play by the rules in a game where the rules favor cheaters, for the guys who are accredited as boyfriend material but somehow don’t end up being boyfriends, for all the nice guys who are overlooked, underestimated, and unappreciated, for all the nice guys who are manipulated, misled, and unjustly abandoned, this is for you.

This is for that time she left 40 urgent messages on your cell phone, and when you called her back, she spent three hours painstakingly dissecting two sentences her boyfriend said to her over dinner. And even though you thought her boyfriend was a chump and a jerk, you assured her that it was all ok and she shouldn’t worry about it. This is for that time she interrupted the best killing spree you’d ever orchestrated in GTA3 to rant about a rumor that romantically linked her and the guy she thinks is the most repulsive person in the world. And even though you thought it was immature and you had nothing against the guy, you paused the game for two hours and helped her concoct a counter-rumor to spread around the floor. This is also for that time she didn’t have a date, so after numerous vows that there was nothing “serious” between the two of you, she dragged you to a party where you knew nobody, the beer was awful, and she flirted shamelessly with you, justifying each fit of reckless teasing by announcing to everyone: “oh, but we’re just friends!” And even though you were invited purely as a symbolic warm body for her ego, you went anyways. Because you’re nice like that.

The nice guys don’t often get credit where credit is due. And perhaps more disturbing, the nice guys don’t seem to get laid as often as they should. And I wish I could logically explain this trend, but I can’t. From what I have observed on campus and what I have learned from talking to friends at other schools and in the workplace, the only conclusion I can form is that many girls are just illogical, manipulative bitches. Many of them claim they just want to date a nice guy, but when presented with such a specimen, they say irrational, confusing things such as “oh, he’s too nice to date” or “he would be a good boyfriend but he’s not for me” or “he already puts up with so much from me, I couldn’t possibly ask him out!” or the most frustrating of all: “no, it would ruin our friendship.” Yet, they continue to lament the lack of datable men in the world, and they expect their too-nice-to-date male friends to sympathize and apologize for the men that are jerks. Sorry, guys, girls like that are beyond my ability to fathom. I can’t figure out why the connection breaks down between what they say (I want a nice guy!) and what they do (I’m going to sleep with this complete ass now!). But one thing I can do, is say that the nice-guy-finishes-last phenomenon doesn’t last forever. There are definitely many girls who grow out of that train of thought and realize they should be dating the nice guys, not taking them for granted. The tricky part is finding those girls, and even trickier, finding the ones that are single.

So, until those girls are found, I propose a toast to all the nice guys. You know who you are, and I know you’re sick of hearing yourself described as ubiquitously nice. But the truth of the matter is, the world needs your patience in the department store, your holding open of doors, your party escorting services, your propensity to be a sucker for a pretty smile. For all the crazy, inane, absurd things you tolerate, for all the situations where you are the faceless, nameless hero, my accolades, my acknowledgement, and my gratitude go out to you. You do have credibility in this society, and your well deserved vindication is coming.

Thursday, February 5, 2009

Changes to the web site

For the last couple of days I have been working on my home page. I have added a couple of features - one being the system for showing status msgs (or latest updates) on the website and adding mail notification to the guest book. The first one would help me set simple msgs on the website that can be according to my mood. The second feature would allow me to instantly know if someone left a message for me.

Check it out at: